Government has published a bill to lower transfer tax rates and proposes amendments to the tax base
The Finnish government has published a proposal to the Parliament amending the transfer tax rates on both real estates and securities retroactively as of 12 October 2023. In addition, shareholder loan receivables would be added to the tax base of securities from the beginning of next year.
New lower tax rates will be applied retroactively
The Finnish government has published a bill to lower the transfer tax rates. If accepted in Parliament, the transfer tax on real estate would be lowered from the current 4% to 3% and the transfer tax on securities from 1.6% or 2% to 1.5%. Currently, the transfer tax on shares in real estate companies is 2%, but going forward all share transfers within the scope of transfer tax would be taxed at the same rate of 1.5%.
After the enactment of the Government Bill (which is proposed to take place on 1 January 2024), the lower tax rates would be applied retroactively to transactions on which a binding agreement has been entered into on or after 12 October 2023. In most cases, the closing date would be the crucial date for this purpose. If the transfer tax is payable during this year before the new legislation has taken effect, the taxpayer will have to pay the transfer tax at the current higher rate. In these cases, the Tax Administration would refund the excess tax without separate application after the new rules have become effective.
Transfers of shareholder loan receivables will be included in the transfer tax base
According to the new proposed provision, in addition to levying transfer tax on transfers of shares, transfer tax will be payable on the transfer of a shareholder loan receivable from the target company or its group company together or in connection with the transfer of shares in the target company, provided that both transfers form one transaction and the payment of the transfer of the loan receivable benefits the transferor of the shares. This new provision aimed at transfers of shareholder loan receivables in connection with share transfers will be applied to transactions whose closing takes place on or after 1 January 2024.
The transfer tax legislation was previously amended in 2013 with the purpose of preventing transfer tax planning in the form of leveraging the target entity. According to the provision added at the time, the transferee’s payments to a party other than the transferor and an obligation assumed by the transferee in accordance with the terms of the transfer agreement are included in the transfer tax base, provided that the transferor benefits from the payment or the transferee’s assumption of the obligation. In tax case law, transfers or repayments of shareholder loan receivables in connection with a share transfer were included in the transfer tax base until the Supreme Administrative Court (SAC) ruled in 2019 that transfers of shareholder loan receivables were not subject to transfer tax, even if carried out in connection with the transfer of shares in the debtor company.
After the SAC’s rulings, except for mutual real estate companies, the transfer tax treatment has been different provided the transferee has acquired the transferor’s receivable from the target rather than repaying it to the transferor on behalf of the target at closing. This discrepancy between the transfer tax treatment of economically similar situations, which was never the aim of the legislator, will now be abolished.
In addition to the above, other minor changes to existing transfer tax rules are also proposed. For example, it is proposed to extend the scope of the transfer tax exemption applicable to an income tax neutral transfer of assets to transfers that are made to an existing company (this exemption currently being available only to new recipient entities).
Further, it is also proposed that, in the event securities are distributed as a dividend in kind, the taxpayer would be the distributing entity, not its shareholders. This latter change is proposed to become effective only on 1 January 2025.
Should you like to discuss the effect of the changes to your specific case, please do not hesitate to contact us.